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Self-Managed Super Fund Property Investment

Investors with self-managed super funds (SMSF) are aware of the need to diversify their portfolio as protection against volatility in different markets. Property has always been a popular component, with traditional residential property usually the first place investors turn.

While residential real estate can offer a solid investment, a lot of due diligence must be undertaken to ensure your funds are being put to best use. High demand locations may offer great capital growth, but the cost of getting into properties in that market can often be cost neutral, or even end up eating into cash. For SMSF investors, cash flow from their property is what is important, so it’s a good idea to, invest somewhere with high rental yields that will generate regular income over the long term.

While some SMSF investors may have the time, knowledge and experience to undertake the necessary research, many others may not. Whether they are still working, volunteering, looking after family or simply too busy enjoying themselves, there are investors who aren’t able to, or aren’t prepared to undertake the legwork required to invest in residential real estate.

That’s where the conversation can turn to putting a serviced apartment investment into your SMSF. Serviced apartments offer investors a range of benefits and investors are beginning to take notice of the benefits of putting serviced apartments into their super funds.

To start with, serviced apartments offer longer term and more secure leases over regular residential property. Serviced apartments are leased to a long-term tenant, such as Quest Apartment Hotels, who then let out the apartment for short stays, like a hotel room. Your rent is paid directly to you, regardless of whether the property is occupied, meaning you don’t lose money when the property is vacant. For investors, this results in a reliable and steady rental income, a definite plus when in retirement and relying on cash flow to sustain a lifestyle.

Secondly, serviced apartment leases are for a much longer term. Longer leases mean security for both the investor and the tenant. The investor knows the serviced apartment operator is responsible for their rental income for the term of the lease, and the operator knows they can rely on that property being available to let. Reliable rent over a long term lease means that investors are able to more accurately forecast income, and therefore personal expenditure.

One big challenge of traditional residential real estate is staying on top of your property’s worth. Knowing the current rental rates and ensuring your investment property is earning you what it should can be laborious and time consuming, requiring independent research and coordination with your letting real estate agency.

With Quest serviced apartments, however, leases have built-in rental increases, usually at a rate of 4% and reviewed at the start of every 6th year. This means that for a five year lease period, your rent will increase by that rate, every year, until the end of the term. For investors, this means they can easily forecast for those years, based on the agreed-upon amount set at the beginning of the lease period. This reliability is important for SMSF investors, for whom managing cashflow is especially critical.

By way of contrast, in the residential real estate market, you would have to negotiate a rental increase with the tenant every time the lease is up (usually at the most every 12 months). If you have a good tenant that pays on time and looks after the property, you may be less willing to increase the rent for worry of losing them. Of course, if your tenant does decide to leave, you are also looking at lost income for the vacancy period.

So if you’re thinking of a Self-Managed Super Fund property, investigating serviced apartments is something you should consider. Quest Properties sell Quest Apartments which are Australia’s largest and fastest growing serviced apartment operator. They have more than 150 sites across Australia, New Zealand and Fiji, their corporate partners have the expertise to inform and advise Quest about locations and property type, backed up by Quest’s dedicated team of researchers.